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Binance Hints At Impending Margin Feature, Could Boost Crypto Rally

Binance Drops “2.0” Graphic, Expected To Launch Margin

On Tuesday, crypto exchange Binance recently the tweet seen below. No words were attached to the image, which reads “2.0” and shows a portion of Binance’s logo.

So what exactly is this nebulous graphic implying, if anything? Well, most like Alex Kruger, Filb Filb, and more, believe that this recent tweet is a sign that the company will soon launch margin trading, a new graphical user interface, and other offerings that its crypto users have been waiting for. Let’s take a closer look at the expectations for margin trading, which means that users can leverage their trades.

Well, during an “Ask me Anything” stream following the now infamous $40 million hack,  Binance’s Changpeng “CZ” Zhao fielded questions about Binance’s plans for its expansive roster of products. Responding to rumors that the exchange intends to launch margin trading for Bitcoin and other popular digital assets, the industry insider stated that Binance does, in fact, have plans to launch the aforementioned feature soon.

CZ explains that engineers at Binance are “beta testing” the feature, and that leverage support will soon roll out to “large traders,” whom the exchange “has agreements with, so if they are bugs, we can fix those.” He adds that once the bugs regarding margin trading are ironed out, it may be rolled out to Binance’s clientele in certain friendly jurisdictions, citing the fact that “the code is done.”

This confirmation that margin trading, which Binance first mentioned in its seminal whitepaper, is soon arriving comes just days after Reddit sleuth “enriquejr99” revealed that the “isMarginTradingAllowed” boolean in Binance’s API was enabled for nine pairs: BTC-USDT, BNB-BTC, ETH-BTC, TRX-BTC, and XRP-BTC, and four others.

While this isn’t decisively a bullish catalyst, well-regarded crypto analyst Filb Filb told followers of his Telegram group that this feature is “exactly what we need for [this] bull market”, hinting that this new feature from Binance could be a factor in what boosts Bitcoin and other digital assets in the years to come. Or, at the very least, be a factor in kick-starting this expected move to the upside.

Could Financialization Of Crypto Be Bad? 

While some are entirely fine with Binance launching margin, as this may attract more investment in the space, some are wary that this added vector of speculation can result in more market chicanery.

Renowned crypto-centric researcher Willy Woo points out that blockchain data shows that there weren’t enough capital movements to warrant the idea that spot markets caused the Bitcoin boom. Instead, Woo exclaims that the recent move to $8,000 was an “orchestrated short squeeze to milk profits”, a move purportedly “done by pros”.

With margin, there is that much more risk that there will be players trying to manipulate or liquidate shorts or longs in a bid to turn a profit.

Title Image Courtesy of Marco Verch Via Flickr

The post Binance Hints At Impending Margin Feature, Could Boost Crypto Rally appeared first on Ethereum World News.

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Buyer Beware? Credit Creeps Into Crypto

Marc Hochstein is the managing editor of CoinDesk and a former editor-in-chief of American Banker. 

The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.

Neither a lender nor a borrower be.”

Polonius’ advice to Laertes in “Hamlet” might well have been a rallying cry for the early bitcoin adopters who sought an alternative to fractional reserve banking.

On a blockchain, an asset can be in your wallet, or it can be in my wallet. It cannot be in both at the same time. You can still lend it to me, but if you do, it’s like letting me borrow your lawnmower – you can’t mow your own lawn until I return it. Unlike banks as we know them, lenders of bitcoin cannot create money out of thin air, Jamie Dimon’s comments notwithstanding.

Quite apart from providing an alternative to central bank money creation, however, cryptocurrencies and blockchains imply liberation from more prosaic forms of credit.

For example, the peer-to-peer architecture of cryptocurrency means transactions are continuously settled on a gross, or one-to-one, basis, rather than waiting to net out a batch of debits and credits across the books of a central intermediary.

Meanwhile, blockchain securities platforms such as tZERO seek to collapse Wall Street’s Rube Goldberg assembly line of trade, clearing and settlement into something closer to “one and done.”

And in an emerging type of crypto transaction called atomic cross-chain swaps, it is impossible for only one side of a trade to go through. It gets done, or it doesn’t.

All of these innovations should, in theory, reduce the need for credit to bridge the gap between trade and settlement, and lead us to a world without baffling distinctions on our bank statements like “current balance” versus “available balance.”

And yet, credit, in various forms, is creeping into the blockchain economy.

Leveraged bets

Consider the following:

  • With bitcoin’s price hitting new all-time highs and garnering mainstream media coverage, there are secondhand reports of U.S. consumers going into debt to buy cryptocurrency. “We’ve seen mortgages being taken out to buy bitcoin,” Joseph Borg, president of the North American Securities Administrators Association, said on CNBC. “People do credit cards, equity lines,” said Borg, who is also director of the Alabama Securities Commission.
  • Most or all of the major crypto exchanges offer margin trading (including, ironically, Poloniex, which apparently did not heed its Shakespearian namesake’s advice). BitFlyer, based in Japan, for example, allows traders to leverage up to 15 times their cash deposit. To be fair, the lending on these platforms is often peer-to-peer, between exchange customers. “We don’t take any risk. The trading is between our customers,” bitFlyer’s CEO Yuzo Kano told the Financial Times recently.
  • At CoinDesk’s Consensus: Invest conference last month, there was much talk of bringing other forms of leverage, such as prime brokerage and securities lending-type services, into the crypto market to accommodate demand from newly-arrived institutional investors.
  • There is some speculation that Tether, the issuer of a dollar-pegged cryptocurrency, has been printing tokens to drive up the price of bitcoin on Bitfinex, an affiliated crypto exchange. For the record, Tether has said its tokens are fully backed and that a forthcoming audit should put the doubts to rest.

Some out there will say: Told you so.

According to one school of thought, credit, be it net settlement or fractional reserve banking, is necessary for a functioning financial system, and to think otherwise is naive utopianism.

Expressing this view, Perry Mehrling, an economics professor at Columbia University’s Barnard College, exhorted techies to wake up and smell the interdependency in a September blog post:

“…[M]arkets are being made to convert one cryptocurrency into another, and … markets are being made to convert cryptocurrency into so-called fiat. Someone or something is making those markets, and in so doing expanding and contracting a balance sheet, in search of expected profit. … Cryptos fear credit, but I suspect they will soon discover that credit is a feature not a bug, and that will require them to re-examine the implicit monetary theory that underlies their coding.”

But there’s another way to look at the situation, which might be summed up as: there goes the neighborhood.

The phantom menace

In other words, an influx of get-rich-quick types, whether they’re individuals taking out loans to buy crypto or institutional investors seeking to juice returns with leverage, could encourage the sort of behavior that bitcoin was designed to escape.

Like, say, a hosted wallet provider lending out customers’ bitcoin without telling them.

“I fear the financialization of bitcoin, in the sense that it may create phantom bitcoin that may not actually exist,” said Caitlin Long, the president and chairman of Symbiont, an enterprise blockchain startup.

As a Wall Street veteran, Long doesn’t fit the typical bitcoiner profile, but she’s been personally investing in the cryptocurrency since as far back as 2013, when her day job was running the pension business at Morgan Stanley.

“As more of the non-philosophical owners of bitcoin come in to bitcoin, where you’re seeing more and more of a push toward the financialization of it, I think that would be a shame,” she said. “Even though it would boost the price in the short term, it would remove bitcoin from being a true store of value.”

Switching back to the securities markets, Long said she doesn’t buy the argument that net settlement is necessary for a system to function. For one thing, the practice creates little-appreciated risks.

“As long as you’re allowing net settlement, you’re not forcing a true-up on every trade that there is one buyer and one seller,” she said. “If you’re allowing net settlement, what you’re really doing is allowing multiple buyers for only one asset.”

Hence situations like the court case this year in which brokerage firms had sold more shares in Dole Food than the company had actually issued.

Further, Long said, the global financial markets have dragged their feet in speeding up settlement times not because the status quo is efficient but because it’s profitable for incumbents.

“The whole reason we have T+3, T+2 settlement is for securities lending,” she said. “It’s all about brokerage firms who want to be able to lend their clients’ securities to other clients and take a spread.”

Reality check

In this light, blockchains are not the mere fantasy of a coterie of anarcho-capitalists and Silicon Valley propellerheads, as a number of skeptical academics, journalists and bloggers make the technology out to be.

Rather, if put into wider practice, blockchains might dispel many current, widely held fantasies.

To be sure, there may be times where credit (ultimately another word for “trust”) is truly unavoidable. By trusting me not to run out the door without paying, the grocer is in a sense extending me credit for the minute or so between when I pick up a jar of pickles from the shelf and when I pay at the counter.

And when you order a pickle slicer from Amazon, you are in a way extending credit to the retailer by paying and waiting a few days for the delivery.

But these are transactions involving physical objects, and the “loan” terms are only as long as they need to be. When the items being exchanged are purely electronic abstractions (as money and securities increasingly are), what purpose does credit (waiting to be renumerated) serve?

It’s a question that we should at least ask, and demand better answers than “this is the way it’s always been done.”

This above all: To thine own trades be true.

Shadow image via Shutterstock

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